Apple closes first quarter without Jobs at helm

Wall Street still expects strong results, though some say absence is palpable

SAN FRANCISCO (MarketWatch) -- When Apple Inc. delivers its next earnings report later this month, it will mark a milestone of sorts: the company's first reporting period without Steve Jobs, its co-founder and chief executive.

Day-to-day management is in the hands of Chief Operating Officer Tim Cook, who has overseen several new product introductions but also has to cope with a severe economic downturn that has crimped demand for PCs and other high-tech products.

Apple
AAPL, -0.32%
is scheduled to deliver results for its second fiscal quarter on April 22. Although Jobs remains chief, he went on a medical leave of absence earlier this year that's scheduled to end in June. His health became a matter of concern last year when his appearance at a trade show set off rumors that the cancer he successfully battled in 2004 may have returned.

"They seem to still be focusing on strategy and execution," said Ashok Kumar, who covers Apple for Collins Stewart.

So far, investors seem to have kept their faith in Cook and company. Since Jan. 14, when Jobs announced he would be stepping aside to handle his health issues, Apple's stock has climbed more than 35% to $115 a share -- reaching its highest levels since last September.

By contrast, the Nasdaq Composite Index
$COMPQ
is up only 7% during that time frame, while the Dow Jones Industrial Average
DJIA, +0.08%
actually has shed about 4.4%.

"While shares are outperforming the Nasdaq by 30 points for the year to date, shares underperformed the Nasdaq by 16 points in 2008," Barclays Capital analyst Ben Reitzes wrote in a report April 6. "We believe Apple can make up more ground with another quarter of solid results, combined with a continued flow of new products into the summer."

Reitzes raised his price target on Apple shares to $143 from $113.

Broadpoint AmTech analyst Brian Marshall also lifted his target to $120 from $110. "Despite the weak economy, Apple continues to gain share in large markets while generating tremendous amounts of cash," he wrote in a March 16 note.

Shadow of Jobs

Over the past three months, the company has continued to roll out new products, including a new model of its iPod shuffle music player that features voice commands, a new version of its iPhone software and the latest upgrades to its line of iMac desktop computers.

But the shadow of Jobs remains over Apple, possibly more so than at any other company with an executive on the sidelines. While Apple has kept releasing new products and upgrading others, many of the company's observers admit that there has remained a sense of something missing.

"It's hard to tell if the economy or Steve has had the most effect, but Steve's absence has had some adverse impact on Apple," said Rob Enderle, president of technology-research firm the Enderle Group.

Even the company's annual appearance at the Macworld Expo in early January was a bit of a downer, as Jobs declined to make his traditional keynote address. The show was held before Jobs said he would be going on medical leave, but Apple already had said it would be the last time it would participate in the event.

"They should have had a lot more excitement with their product releases, and we saw that Steve is a large part of that excitement," Enderle added.

Some Apple watchers have argued that Jobs -- a chief executive who's also the face of the company -- has long been more of a figurehead, while operations and marketing officials such as Cook and Phil Schiller, its vice president of marketing, manage the nuts and bolts. Apple's performance over the last quarter is a testament to how well the company is run, observers say.

Estimates

Current expectations are relatively modest. Wall Street is expecting revenue to increase less than 6% to $7.94 billion compared with the same period last year, according to estimates from FactSet Research. Earnings are expected to come in at $1.05 a share -- down from a profit of $1.16 a share last year.

In its last earnings report, Apple predicted earnings of 90 cents to $1 a share, on sales in a range of $7.6 billion to $8 billion. But the company has a history of lowballing and then exceeding its forecasts.

Wall Street also seems to have baked in some caution since Jobs took his leave. Sales estimates for the quarter have been trimmed by an average of nearly 6% since early January, while the figure for earnings per share has been cut by 7%, according to FactSet data.

Still, it remains unclear if these cuts are the result of worries about the economy, or the company's performance under Cook without Jobs' oversight.

Cook is no stranger to Apple. Jobs hired him from Compaq Computer in 1998, and he has been running Apple's manufacturing and distribution operations since. Cook is known for being a detail-oriented executive, and had been taking on more of a public role at Apple leading up to Jobs' leave of absence.

Jobs promoted Cook to chief operating officer in October 2005, and cemented his position saying: "Tim has been doing this job for two years now." Since then, Cook has been a fixture on Apple's quarterly conference calls and at annual shareholder meetings -- which he ran this year in place of Jobs.

New products on the horizon

Apple typically upgrades its products once a year, with different product families paced throughout the year.

Next on the slate is the company's annual worldwide developers' conference, beginning June 8. Apple typically unveils some new devices there to drum up excitement for the back-to-school and holiday-shopping seasons.

Based on the fact that Apple already showed off the new version of its iPhone software, many analysts believe the company will debut at least one new iPhone model at the event.

"Our checks still point toward Apple readying a new 3G iPhone, which we believe will ship in June, with an upgraded camera, new software, better email and security," said Reitzes of Barclays Capital.

Shaw Wu of Kaufman Brothers believes Apple could unveil two new iPhones, one with a more powerful processor and also a "junior" device that might have less functionality than the current iPhone 3G. He also believes that the company could make some changes to its data plans to attract more customers.

"Some customers may be delaying purchases until new iPhones ship," Wu wrote in a note. "[We think] one of these new iPhones will contain a much more powerful application processor enabling it to run more complex software. It is not clear to us if this will replace the current 3G iPhone."

Kumar, of Collins Stewart, said the absence of Jobs, and whether he returns later this year or not, won't keep the company from rolling out stylish computing and electronics products. For example, Kumar foresees Apple debuting a new touch-screen table PC that will be positioned somewhere between an iPhone and a Mac.

Regardless of who is running Apple, the company knows what to do to keep its position secure in the electronics industry. "They seem to still have a strong product pipeline and are able to control what they can control very well," Kumar commented.

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